What Is Earnest Money in Texas?

When you make an offer on a home in Texas, one of the first decisions you will make is how much earnest money to put down. It is one of the most misunderstood parts of the home buying process — and one of the most important. Here is everything you need to know.

What Is Earnest Money?

Earnest money — sometimes called a "good faith deposit" — is money you put down when you make an offer to buy a home. It signals to the seller that you are a serious buyer, not someone who is going to back out on a whim.

In Texas, earnest money is not paid to the seller. It is delivered to an escrow holder — typically the title company or an attorney — who holds it in a trust account until closing. At closing, the earnest money is credited toward your down payment or closing costs.

How Much Earnest Money Is Standard in Texas?

Texas does not set a legal minimum for earnest money. The amount is negotiated between the buyer and seller. That said, there are general conventions based on the market:

• Standard range: 1% to 2% of the purchase price
• Competitive markets: Buyers sometimes offer 2% to 3% or more to strengthen their offer
• Entry-level transactions: A flat $1,000 to $2,500 is common for lower price points

On a $400,000 home, a 1% earnest money deposit is $4,000. A 2% deposit is $8,000. The higher your earnest money, the more seriously the seller tends to take your offer.

When Is Earnest Money Due?

Under the TREC 1-4 Family Residential Contract, earnest money must be delivered to the title company within three days of the effective date of the contract. Missing this deadline can put you in default under the contract.

When Can You Get Your Earnest Money Back?

During the Option Period

If you negotiated an option period, you have an unrestricted right to terminate the contract for any reason during that window — and you will receive your earnest money back in full.

Financing Contingency

If your financing falls through — you cannot get approved for a loan that meets the terms in Paragraph 4 of the contract — you have the right to terminate and recover your earnest money.

When You Forfeit Earnest Money

If you simply change your mind and walk away after the option period has expired and no contingency applies, you will typically forfeit your earnest money. The seller is entitled to keep it as liquidated damages for your failure to perform.

Earnest Money vs. Option Fee: What Is the Difference?

• Earnest money is held by the title company in escrow and is refundable under certain conditions. It is credited toward your purchase at closing.
• Option fee is paid directly to the seller and is generally non-refundable. It buys you the right to terminate the contract during the option period for any reason.

Earnest Money Strategy: Practical Tips for Texas Buyers

• Offer enough to be taken seriously — in most markets, less than 0.5% of the purchase price looks weak
• Always negotiate an option period so you have a protected exit window after inspection
• Set a calendar reminder for the earnest money delivery deadline the moment the contract is executed
• Keep your funds liquid and accessible — do not tie up your earnest money in investments that cannot be quickly liquidated